SBM Offshore N.V. (SBMO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Full Year 2022 Earnings. [Operator Instructions] Just to remind you, this conference is being recorded. I would like to hand over the conference to Mr. Bruno Chabas. Please go ahead.

Thank you very much, operator, and welcome to SBM Offshore Full Year 2022 Earnings Calls. I'm Bruno Chabas, CEO of SBM Offshore, and I'm joined today by our COO, Oivind Tangen; and our CFO, Douglas Wood. Let me present SBM Offshore results, our main achievements for 2022 and go through the strategic update of the company, after which Douglas would go through our financials. As always, we welcome your questions after the prepared section of this call. As always, also, please note on the disclaimer. So now let's start with the way we create value for all our stakeholders. The work situation has put a spotlight on the competing demands of the energy transition. As an energy transition company, we seek to reconcile the demand for secure and affordable energy supply with sustainability by putting our oil and gas experience and of this -- expertise at the service of the new energy area. As you know, a change like this does not happen overnight. We're pragmatic with a strategy that sets a realistic pace for change, developing innovative offshore technologies to make the transition tangible. We delivered this strategy and created value through 3 platforms: First, the Ocean Infrastructure platform. Based on 15 assets we lead and operate throughout the world and the 5 FPSO under construction, for which we -- which will join our fleet in the coming next 3 years. This platform delivers cost and carbon-efficient energy to the world. It generates a record year-end backlog providing healthy creditable cash flow up to 2050. Next, transition to the core, supporting our FPSO business transformation, where we already are a leader. We intend to further strengthen this position by improving our competitiveness and carbon efficiency through our emissionZERO program. Finally, New Energy through which we invest in new energy technology and solutions, to address this growing market sector and cover activities that leverage SBM Offshore operational experience and data for digital solutions. Now let's take a closer look at the highlights of the year. 2022 has been a challenging year for SBM Offshore. Yes, we're able to achieve a good performance. This success is once again directly driven by the talent, motivation and dedication of all SBM employees. So starting with our operation performance. We saw the flawless delivery of Liza Unity at the beginning of last year and a 97% fleet uptime performance over 2022, excluding FPSOs Cidade de Anchieta. Cidade de Anchieta safety resumed production in December last year. Safety has always been a top priority for us. The total recordable injury frequency rate was 0.12 below the 0.15 set for the year. On the financial side, the company generated a record EBITDA of above USD 1 billion. And our year-end backlog reached another record of above USD 30 billion. Our performance is translated in our energy-leading shareholder return. This year, again, we propose to up our dividend with a proposed 10% increase. If we look at our core business growth, in 2022, the award of FPSO ONE GUYANA was confirmed, and we have ordered an additional new hull, for which an MOU was signed with ExxonMobil Guyana. As you will see later, the market outlook remains very positive. Finally, we're progressing our transition journey. Tangible results have been achieved on our floating offshore wind project Provence Grand Large offshore Marseille, where several milestones have been reached on our energy and several milestones have been reached on our emissionZERO program. And we have set an emission reduction target by 2030 using a science-based approach compatible with our net-zero ambition by 2050. We defined our strategic priorities and action plan based on the topic of stakeholders tell us matter to them. As such, environmental, societal and governance topics drive our strategy and are embedded in its core. For 2022, SBM Offshore set target with 2 particular focus on people and on emission reduction. So starting with people. We have done so by improving our safety performance with a total recordable incident frequency rate of 0.12 as already mentioned. Secondly, by focusing on employees' well-being and the welfare of people who work through our supply chain. Likewise, on emission reduction, we have done so by achieving a fleet average of 1.42 million standard cubic feet per day below the average target of 1.7 on gas flare; and by setting intermediate targets towards 2030, including a 50% reduction on greenhouse gas intensity of Scope 3 downstream lease assets by 2030 compared with 2016, taking the science-based approach. We're pleased to see our efforts and achievement being recognized by third-party experts when they review SBM Offshore sustainability performance. For example, we improved our rating in sustainability being ranked first in energy services. And SBM Offshore was also recently ranked in the top 5% global ESG score by S&P Global. Now over to our first value platform, our Ocean Infrastructure. Before looking at our portfolio, I would like to highlight the exceptional performance delivered by our teams and the value we bring to our stakeholders. This is particularly visible this year with our performance in Guyana. Despite the pandemic, we safely and successfully delivered Liza Unity at the beginning of 2022, so pacing industry benchmark. This is the first unit deal under our Fast4Ward program, which evolved with a concept launch -- which evolved from a concept launch in 2014 to an operational reality today with 6 more under construction. Both Unity and the earlier FPSO Liza Destiny are now exceeding their target production. FPSO Prosperity is on track with an expected first oil in 2023. The fourth FPSO in Guyana was awarded to us this year with FPSO ONE GUYANA. On top of these units, the company signed an MOU with ExxonMobil Guyana for seventh second sale on our Fast4Ward program. Let's turn to our construction and fee portfolio. First, on the execution side, despite the COVID-19 crisis and the current inflationary environment, we saw solid progress on our project portfolio. I'm proud of our teams, which have put enormous effort into seeking to mitigate the impact to the extent possible. 2023 will be particularly exciting with the delivery of FPSO Sepetiba, for which integration and commissioning activities are progressing; and FPSO Prosperity, which safely departed from Singapore following the completion of integration and offshore commissioning. FPSO Almirante Tamandaré, Alexandre de Gusmão and ONE GUYANA are progressing in line with client expectations. Those projects will be adding over 1 million barrel of oil per day capacity to our existing 15 units currently producing with an installed capacity base of 1.8 million barrels, so more than 2.8 million barrel capacity per day of instant capacity controlled by SBM Offshore. Regarding the fleet, a special focus of the year was on tank repair for the Cidade de Anchieta unit. The team successfully managed the challenges of offshore work and managed to safely resume production of the unit in December 2022. Excluding this unit, the underlying fleet uptime was 97%. Our historical uptime over the last 10 years stand at 98%. Last year, we secured several contract extension for FPSO Serpentina, Mondo, and Saxi Batuque. These extensions plus loads of FPSO Kikeh and Espirito Santo in recent years have contributed to a total of about $600 million backlog increase, which demonstrate the value that further extension could generate to the company. Now let's turn to our second value platform, transition to the core. The market outlook in our traditional FPSO business is very positive. We foresee around certified potential FPSO awards over the next 3-year period. In average, 12 FPSO per year could be awarded, for which we see at least 40% being in our niche market of large and complex FPSO. The majority is expected in South America and West Africa, where we have decades of operating experience and basins in which our Fast4Ward solution is extremely well suited. Our capacity remains at 2-plus FPSO awards per year or about 6 FPSO at various stages of construction. We will continue to remain selective and disciplined in selecting which bids we pursue. Our niche market of large and complex FPSO supports data resilience with relatively low breakeven prices and low green health gas emission intensity. Our contribution to this double resiliency is materialized through the execution of our Fast4Ward program, focusing on better performance and faster delivery, allowing low and attractive breakeven prices between USD 25 and USD 35 per barrel. And our emissionZERO program, focusing on the decarbonization of our future producing unit, our existing effort in this regard are only reflected in our Generation 3 units. In the latest Fast4Ward unit, which has a greenhouse gas emission density of around 40% lower than the industry average. Now let's look here on faster delivery. In a world where our clients focus on capital discipline going to short cycle investment generating a return within 5 years rather than 10 or more previously, time to market is a key parameter for client's economics. You can see on the graph to the left that, over the past 10 years, field development took average 9 years from discovery to first oil. Despite the increasing complexity of new FPSO, SBM Offshore has contributed to the acceleration of field development with an average of 7 years for projects in which we have been involved. These results required discipline, experience and strong project management further enhanced by our own optimized and standardized FPSO design. On the chart to the right, we have the example of the Two Guyana project currently under operation, where time to market was 5 years for Destiny, which targeted early production and below 7 years for Unity. To put things in perspective, around 170 million barrels of oil were produced by those 2 units from 2019 to 2022, which at today's price is equivalent to around USD 14 billion, while at the same time, the majority of field in the quarter will not be even close to be producing. Success is possible thanks to the early engagement with clients, our fast-forward approach and the best-in-class -- and our best-in-class EPC delivery. Now looking at our emission reduction mission. As an energy transition company, in 2021, we announced our ambition to achieve net-zero by no later than 2050. To create a clear path for this ambition, last year, we defined intermediate targets towards 2030 using a science-based approach with the following milestones, reduce the greenhouse gas intensity of Scope 3 downstream lease assets by 50% by 2030 from the 2016 as a base year. Achieve 0 routine flaring by 2030, reach net-zero emission on scope 1 and 2 by no later than 2025 and towards 100% green energy by 2030 and offer the market the near zero emission FPSO by 2024. These will help us to stay focused and on track to meet our net-zero ambition by 2050. One of the first target we have to achieve and one of the key pillars in our energy transition is the delivery of our emission zero road map. Through this, we aim to offer a near zero CO2 emission FPSO to the market by 2025. The program started in 2020. And since then, we have made good progress within our concept, design and technology development supported by development with clients and partners. To mention a few achievements in lowering emissions, we now include closed flare in project tenders. We have matured what we call our smart operation approach, digitalizing our fleet to monitor and reduce emission. We have issued and validated engineering design for combined cycle with related energy efficiency being offered on our firm tender. On the electrification journey, key components have been validated through technology readiness level, and full electric drive FPSO can be offered on certain standards. Finally, on the carbon capture development, feasibility study has started and is progressing, and we have initiated engagement with technology providers. We are, therefore, remaining on track with our ambition for 2025. Finally, the company is progressing on its energy -- new energy value platform. Starting with the most tangible results. We have seen very good progress on our Provence Grand Large project, the company's first pilot project in the floating offshore wind market. All major construction milestones have been achieved, and the 3 floaters of 8.4 megawatts each are scheduled to be commissioned this year. This will account for around 10% of the installed floating wind electricity generation capacity in the world by 2023. This would be the first project worldwide to be installed using Tension Leg moving technology, which has minimal motion and seabed footprint. Capitalizing on this experience, we have delivered further improvements for future designs, which are captured by our Float4Wind concept, the second generation of SBM Offshore floating wind technology. We are also codeveloping floating offshore wind projects and securing seabed rights and relevant permits together with partners to better understand the market and accelerate new technology deployment. Turning to the floating offshore wind market. We see that we continue to develop worldwide. We know that it will take time to materialize as the economics remain challenging. The current market outlook of capacity to be sanctioned remains high, although the max of the range has been revised downward from 6 to 16 gigawatts to 6 to 12 gigawatts expected to be installed by 2030 with some of the prospect being delayed beyond 2030. Within this market, which remain promising, the company's ambition remains to become a major player as a floating wind technology provider, leveraging the company's EPCI experience. And we target that is 2 gigawatts by 2030 of installed capacity under construction. Here, again, the company will remain selective and disciplined in this market, targeting only projects that are adding value to all stakeholders. Finally, we see several potential new energy markets where SBM Offshore can leverage its know-how, strength and experience in floating solution to bring new products to support the energy transition. Our business model involves the full life cycle of project development and operations. We have been doing this for more than 60 years. During this period, we have delivered more than 500 floating anchored assets including circa 30% of all offloading terminals delivered and installed as well as develop unique engineering capabilities, technology expertise and operational data. We are monitoring the dynamic of various alternative energy markets to bring technological solution when appropriate and timely. Hydrogen and ammonia technology, floating offshore wind or digital solutions are just a few examples of where technology know-how and experience can be transferred in the fastest way to contribute to the energy transition. As an example, we are currently working on providing offloading solution for carbon dioxide and the development of terminals to adapt for the future fluid such as ammonia. In summary, we are well positioned to be able to participate and capitalize on the variety of existing and future market opportunities when these are attractive from a risk and reward standpoint. So now over to Douglas to go through over the financials. Douglas?

Thank you, Bruno, and good morning, everybody. So for 2022, we delivered results in line with our revised guidance with EBITDA of just over $1 billion, and that's a record for underlying EBITDA, and this reflects the growing size of our business, a 20-vessel portfolio with 15 vessels in operation and 5 more under construction to which, as Bruno mentioned, we see potential to add more. The locked-in cash potential of this growing business is represented by our backlog of $30.5 billion. And this puts us in a pretty unique position of being able to provide guidance on a base level of cash flow for around the next 30 years. Indexation and reimbursable features of our contracts provide protection for this cash flow, and our model brings the advantage that we're able to factor in the latest supply chain dynamics and financial market environment at the time when we bid and win new orders. On the financing front, despite a challenging macro environment, the strong relationships we've built across a broad range of financial institutions enabled us to close the record $1.75 billion financing for ONE GUYANA. To our model, the financial optionality this gives us, coupled with our ability to access a network of different pools of capital, gives us a good deal of resilience and the ability to fund significant growth plus, at the same time, offer attractive long-term cash returns to our shareholders. On the subject of growth, we've been able to maintain a very decent level of gross margin at project portfolio level, as highlighted by the 18% turnkey gross margin for 2022 that you can see under IFRS. Our ability to mitigate the combined effects of the pandemic and the indirect impact from the Warren Ukraine vary from project to project. Then as we highlighted before, in any event, the larger units we're building these days require more investment, and I'll provide some guidance on where we stand here in a moment. On shareholder returns, in line with our policy of paying a stable dividend which grows over time, where we link this growth with growth in the backlog, we're proposing to increase our dividend by 10% to $1.1 per share. That's nearly $200 million in aggregate. Next, to review the key metrics for the year on a directional basis, starting with our order book or backlog. This speaks to the significant long-term cash potential of the company, therefore, making it the most important metric to focus on, in our view. And awarded the ONE GUYANA FPSO drove the increase in the backlog to $30.5 billion. And from the lease and operate and BOT components of the backlog, we expect to receive an aggregate net cash flow of around $9.4 billion over the next 28 years with 1/3 of this expected to come over the next 6 years. Moving to net debt. This increased by around $700 million to $6.1 billion as we drew on project financing to fund the large construction portfolio. Then to the P&L metrics. Total revenue was around $3.3 billion. That's a 42% increase versus underlying revenue of around $2.3 billion for the same period in 2021. And the largest part of this increase came from the turnkey segment, where revenue increased to over $1.5 billion from over $700 million in 2021. We had a ramp-up in activities for 5 FPSOs under construction and then the impact of the partial divestment of 2 FPSOs, which allowed us to catch up the EPC revenue on our partner share for the work done to date. We also saw an increase in lease and operate revenue to around $1.8 billion from around $1.6 billion in 2021. The key points to note here are the impact of Liza Unity during the fleet in early 2022, mainly offset by Capixaba, leaving the fleet in the first half of 2022 and the end of the Deep Panuke contract in 2021. Turning to underlying EBITDA. This increased to just over $1 billion. That's up 8% from the underlying result of $931 million in 2021. The lease and operate EBITDA was the main driver of the increase based on the same factors for revenue that I just mentioned. Turnkey saw a decrease to $7 million from $19 million in the prior period. So for turnkey, you don't see the same kind of impact on EBITDA as for revenue. And there are 3 main factors at play here. First, the fact that direct payments for the Guyana projects, which are 100% owned are recognized as revenue without contributing to gross margin. Second, following the partial 45% divestment in FPSOs Alexandre de Gusmão and Almirante Tamandaré, the first 25% progress on the EPCI-related work has been recognized without associated margin, and that's as per our stage data completion policy. And then we have impacts in some projects resulting from pressure on the global supply chain and the pandemic that could not be mitigated so far. Finally, to mention, as advised in November as part of the Q3 trading update, we've implemented an impairment related to the shutdown of Cidade de Anchieta of $92 million, which impacts net profit. There was a minimal impact on revenue and EBITDA from the shutdown, due to the fact that the contract has been extended for a period commensurate with the shutdown. That means revenue and margin going to be recognized on a linear basis over the contract duration, and that's applying IFRS operating lease standards. Then if we go to cash flow on a directional basis, the cash from operations was sufficient to cover debt service tax and the dividend. The drawdown on the project loans plus cash covered expenditure on the construction portfolio. Then as you can see here, cash consumption related to the divestment of the 2 FPSOs. You may remember that, at the end of last year, we drew down about $1.3 billion from 2 bridge loans for these projects. At the date of divestment, only a part of that cash has been consumed through investment in CapEx. So following the divestment, we deconsolidated the partner share of the remaining debt and excess cash. And looking at liquidity at the end of December, we had $3 billion. In addition to cash, we had a $1.4 billion from the undrawn portion of project debt, and then the RCF was undrawn at the end of the period. Since the end of June, as I mentioned, we closed the ONE GUYANA financing and are progressing the financing for Almirante Tamandaré and Alexandre de Gusmão. Now moving to the details of the backlog and the forecast net cash flow going forward. As I mentioned already, the main change on the backlog for the year-end 2021 was the impact of the ONE GUYANA award. This, plus a material increase links to contractual escalation and reimbursable features of our lease and operate contracts, the extensions on the 3 units Bruno mentioned plus other turnkey activity was more than sufficient to offset turnover during the period. As we show on the large bar on the left, we expect the lease and operate part of the backlog to generate $8.8 billion aggregate net cash after tax and the BOT sales to generate $0.6 billion. As usual, we then played out this net cash backlog over the lifetime of the backlog where average expected net lease and operate cash flow from the blue bars is growing to $320 million per annum for the 28-year period, above the $300 million average at year-end 2021. As ever, it's important to note that this cash flow is underpinned by contracts from premium clients supporting carbon-efficient projects with very low operating breakeven and strong protection against inflation through escalation and reimbursable provisions. Updating on discounted cash flow analysis of Lease and Operate and BOT sales cash flows to include ONE GUYANA and keeping the discount rates consistent with previous periods, see a big increase in the range now EUR 23 to EUR 27 per share, and that compares with EUR 19 to EUR 23 at year-end 2021. Then to look at the various elements of our model for capital allocation and shareholder returns. So based on the updated backlog we just discussed, this is expected to generate $9.4 billion of net cash, including the BOT sales. And zooming in, as usual, on average enhanced net cash from Lease and Operate after tax and debt service for the next 6 years, we have $450 million. It's an increase of $85 million versus last year. Net of an assumed annual $75 million for corporate overheads, this gives average in-hand net cash for the period of $375 million. On top of this, we expect to receive an aggregate of around $600 million contribution to the turnkey cash flow from the BOT sales, so on average, about $100 million per year. And this last amount would be more than sufficient to cover turnkey overheads plus R&D, including the remaining $100 million from the 3-year $150 million renewables pilot spend we guided for last year. And then, of course, we would anticipate to bring in more cash flow in turnkey from new projects secured during the period. As we consistently mentioned in recent years, larger FPSOs require higher absolute net equity investment. In our cash planning for project funding, we typically look to prioritize financing facilities, deferring our equity investment. So the significant part of the cash net equity investment for the 5 projects under construction is still to come. We've decided to guide for this net equity spend where we expect to invest roughly $850 million in the coming years, noting the significant cash balance we had at the end of the year, of which around $400 million was unrestricted. Net of this, this would mean a draw on future cash of around $450 million. Then we've maintained provision for up to $200 million in our forward planning to support our floating offshore wind co-developer ambition. This amount is assumed to be covered by a working capital facility, where we would expect our aggregate investment to be recovered as a minimum as projects are sold down, so cash flow-neutral overall. Finally, the last element of our model, equity cash flow acceleration, can help mitigate the impacts from this gross investment phase on the overall cash flow equation. And this acceleration could take the form of further equity sell-down, plus equity cash flow acceleration from project refinancings. Now while the volatility in pricing levels that we saw last year caused us to pause some of the acceleration transactions we have in mind, as announced today, we've entered into a prefunding agreement relating to the future potential financing of the holding company of FPSO Cidade de Ilhabela, for which we've received $125 million payment in 2023. The final funding agreement is expected to be signed during the course of the year. We're also continuing to work on a number of other options to be ready to the extent the appropriate window of opportunity opens. So now to look at what these updates on capital allocation means for shareholder returns. Driven by the increase in the backlog and net cash in lease and operate, we are proposing to increase the dividend by 10% on a per share basis to $1.10 per share, around $200 million in aggregate. This represents a yield of 7% versus year-end 2022 share price. And as you can see from the chart, it continues the trajectory of dividend growth with a compound increase of 27% since we restarted the dividend in 2016 and, including the proposed dividend, would make for an aggregate $1.6 billion in returns to shareholders from dividends and buybacks over the period. The use of buybacks remains part of the equation. But as we have said previously, buybacks have the advantage of allowing flexibility to balance investment in growth through turnkey with additional shareholder returns in conjunction with the execution of equity acceleration transactions. Let's just discuss, we're in a period of favorable growth with less opportunity in the past year for equity acceleration transactions. However, we maintain our ambition to do buybacks in the future, subject to growth investment requirements and our ability to deliver further equity cash flow acceleration. That's it for me. Now back to Bruno.

Thank you, Douglas. And finally, our guidance for 2023. Revenue is expected to be above $2.9 billion with lease and operate revenue at around USD 1.9 billion and turnkey revenue at above $1 billion. EBITDA is expected to be above $1 billion. Turning to conclusion. Our financial results for this year are good, especially considering the challenges we faced. Our organization continuously evolved to leverage our expertise and extend our competencies. The solid performance comes down to the quality, talent and commitment of the people in the company. And I would like to contribute to the resilience of SBM Offshore employees working in our project and operations all over the world. We're driving progress towards our 2030 target of reducing emission intensity by 50% per barrel of oil produced and developing innovative lower carbon, new energy and digital technology. Industry pacesetting and doing things right at all levels of the organization is what SBM Offshore does and will continue to do as an energy transition company. So thank you for your attention. And now the floor is yours for your questions.

[Operator Instructions] The first question comes from the line of Mr. Luuk Van Beek of Degroof Petercam.

Two questions. First of all, on your ability to order new hulls, the second one has now already been issued by ExxonMobil. The outlook for new order intake is very strong. So can you indicate what will determine when you will order new hulls? And my second question is on Wave Energy, which you no longer mentioned. Can you update us on the progress and prospects there?

Yes. So thanks for your question, Luuk. On the new hull, as always, we're looking at the market. We're looking at opportunities. We're looking at how all of these fit into the capacity of the company. And if and when we're going to make a new order, we're going to make an announcement. With regard to the Wave Energy, it's a project which is progressing, probably not as fast as what we wanted to have, but we're going to make sure further announcement during the year. We're just progressing on our patents and development of technology at this stage.

Okay. Regarding the hulls, you are comfortable that you can order them quickly enough to satisfy any future projects?

I'm sorry.

So any project wins that you are expecting, you're confident that you can get the hulls in time?

I mean you have seen this. We have done this for 7 times previously, and we're looking at how the market is, the opportunity that we have, how we position, the state of the supply chain because it's not only health, it's also supply chain. And we are making a decision based on that. Once we have made a decision, we make an announcement, but we don't see anything in advance.

The next question comes from the line of Quirijn Mulder of ING.

Yes. Congratulations with crossing the $1 billion EBITDA mark for the first time. My questions are related to the market circumstances. If you are right, then of course, we see some developments there that Petrobras is very cautious on tendering on lease contracts. It's more turnkey. And it's also more aimed at, let me say, the Koreans and the Singaporean guys. So is there anything you can add to that to what the market is, in your view and also, maybe on Guyana, where you have seen that MODEC is now entering with the Uaru development that you will, let me say -- and the policy of Exxon is to design one to build many. Are they now in an urgent need of more vessels? Or is that limited to premature that you are still part of the whole process there and that you have not to divide every project in 2 parts with one for MODEC and the second one for you?

Okay. Thank you. So on the market side, lease and operate as we have shown as an industry and more specifically as SBM performance is a model which deliver a huge amount of value to our clients. And it's a model whereby the performance of delivery is far above the performance of delivery of Turnkey. And I would say what we have brought as the SBM Offshore or Fast4Ward is also the ability to accelerate even this model compared to the rest of the industry. So we always have seen phases in the market where, at times, there is more Turnkey and operate -- and at times more lease and operate. However, from a general and trend, and we don't see this changing, there is always a balance between Lease and Operate and Turnkey. Lately, Petrobras was faced with the dilemma. When they went to the market, there was basically no capacity of the lease and operate contractors to deliver new products. So they went to the turnkey side of the market. Are they going to change their behavior? Are they going to go back to the lease and operate market? We're not sure, but time will tell. With regard to Guyana, the -- I mean the only thing I can say there is that the performance that we have achieved in Guyana has been recognized by all stakeholders in Guyana and elsewhere. And really what I've said is, today, we have delivered in Guyana, we have produced more than 170 million barrels of oil, while in most fields throughout the world, we'll still be building the field and in development and not producing for an additional 2 years. So the track record that we have and the value that we have brought to all stakeholders, including local government, including all the partners of Exxon Guyana, is recognized. And I think that the feedback that we're receiving is that the performance that we're having is second to none.

The next question comes from the line of Thijs Berkelder of ABN AMRO ODDO BHF.

Yes. It's Thijs Berkelder of ABN AMRO ODDO BHF. Congratulations with the performance in the past year, countering all the supply chain struggles first question on floating wind projects with [indiscernible] Irish and California. Can you give a update there maybe, and maybe an update on the Norwegian pilot project? Second question is on, let's say, the investment climate or maybe the general climate in the Netherlands. Boskalis threatened weren't to potentially lease the Netherlands because of recent legislation. What's the view of SBM Offshore there? Are you also looking at potentially leaving the Netherlands from a headquarter perspective? And third question is more for Douglas, I would say. The net debt to backlog is at the high end of your normal range. Is it, therefore, logical to not expect a share buyback coming back before the divestment of the Unity FPSO early next year?

Okay. So thanks for that. Let me take the first 2 questions. And the first element is where is the floating offshore wind market standing. And with the auction which has happened in California and there is other auction which have happened also, you can speak about Scotland and elsewhere. What we're saying is that the adoption has been effective, now translating those auction for acreage into development. It's going to take time. It's going to take time because the floating offshore wind market is not an easy market to do. I mean we can see this only building 2 units. One, you're going to have to build 50 or 100 units, you're really looking at the production chain type of things. You're looking at a number of complexity, which are second to none. And all of this generates a lot of uncertainty, a lot of risk and a lot of costs, which are not yet mastered by the industry at large. So we're seeing that there is opportunity. We engaged in a number of those opportunities. We're also looking at the risk and reward side of the equation. We don't want to be in a position of what I've seen -- have been seeing in the fixed offshore wind market. Well, basically, nobody in the value chain has been making money. And therefore, we're not going to engage into projects, whereby it's going to be a loss for everybody there. So in not so many words, what I'm saying there is -- and it's what we provided also in the guidance, we believe that the market demand is there, but there is a lot of debugging before this market demand is going to go and before this market demand is going to be going ahead in a sustainable manner from an economic standpoint. More specifically, on the project in Norway, we engage with the client, whereby we did a lot of desktop validation. They review what we have done on Provence Grand Large and so on. And based on those validation, basically, we came to the conclusion that doing another pilot project was not what was required. So that's not going to be something which we're going to put through at this stage. The overall environment, and I would say the overall environment with regard to energy and the Dutch environment. There, we have a duty, I believe, to dedicate to being mindful about what is energy transition, to mention what SBM Offshore is doing as an energy transient company and really to provide the story that we're doing, which is a good story. Now is this story going to be accessible in different environments in the Netherlands or in Europe? Time will tell. It's something that we're monitoring. At this stage, we don't have really any particular concern on this but obviously something that we need to monitor.

On the net debt to backlog, yes, it's trending towards the top of the historical range. I would say, though, we're still in a pretty comfortable position here, and that's not kind of a hard ceiling that dictates other things that -- how we would look at the capital allocation overall. But as you know, we're in a growth phase at the moment. So as of today, we don't have any plans for a share buyback. But as I mentioned, it's still our ambition to do buybacks in the future. And there, we look carefully at what we need to fund growth and also equity acceleration transactions come into play here.

The next question comes from the line of Andre Mulder of Kepler Group.

A couple of questions. First on Guyana, the government of Guyana is taken some measures in the range of there trying to take back 20% of the acreage that has been allowed to ExxonMobil. So what could be the effect of that in terms of potential awards? Or could we see that will be slowing down? Next to that would be implications for your orders in that country. Second question on China. Where are we in the process of them taking a stake in Sepetiba? What's keeping that? How long will it take, do you feel? Upstream suggested that there is also a possibility to take a stake of the Chinese in Ilhabela. And is there also a possibility that it might take a stake in the whole of the portfolio? Question on Sheet 24 for Douglas, this table. Would you say that the biggest influence of the higher numbers for the full year is related to ONE Guyana? Another question for Douglas. In the past, you mentioned this work in progress. First, I think it was this first half at $2.7 billion and at an average stage of the project is around 40%. I may have missed that, but what -- can you provide new numbers on that 40%? Where are we, possibly a bit higher there so that we can relate that to the work in progress of [ 36-50 ]? Last question is on the lease in the backlog. Obviously, it's a bit larger than, let's say, half stage, while nothing in the portfolio has really changed. What's the reason for that?

Okay. That's a lot of questions. So let's make sure that we're not going to forget any of the questions. Douglas is looking at the detailed part of your question, and I'm going to try to address your question on the market and, more specifically, in Guyana. One of the points which is certain at this stage is that clients are focusing on capital discipline throughout the world. And they're looking for short-cycle investment projects. So the economics of field, which is driven by a number of aspects. Obviously, the technology, the nature of the reservoir but also the fiscal side is absolutely critical for the field to be developed. Otherwise, they are not going to be developed. And it puts pressure on all the stakeholders in the industry, including contractor, including clients, including also the government. Now specifically looking -- speaking about Guyana, I've seen [ my queue ], but I don't have any particular insight on these documents that the Guyanese government was looking, to take part of the acreage has been operated or which has been under Exxon portfolio. I don't know the reason for that. The only thing I can comment on that is that the success that ExxonMobil has had in Guyana has obviously created a lot of interest from other oil companies, and people are keen to be able to access this market to be able to drill and to do some development under an economic situation, which would be favorable. Douglas?

Andre. So starting with the question around China, the investment in Sepetiba. So the deal there is that it only becomes effective after first oil subject to various CPs, but we expect that to be concluded. And as we've consistently said, our strategy to diversify the sources of financing. And we mentioned in the release today the fact that we have a term sheet for a holding company level financing of the Ilhabela for which we received $125 million, and that's expected to complete during the course of the year. So we're looking at a number of alternative sources of financing from Chinese institutions but also other institutions all over the world. Then on Page 24 and the -- I think your question was around the impact of Guyana. So yes, Guyana is a big driver of the increase in the backlog overall, including the lease and operate backlog. As I mentioned, in lease and operate backlog, there were some also other impacts from the reimbursable indexation-related part of our contracts, the extensions that Bruno mentioned and some -- and a few other things. So that's what's driving the numbers there. Then you asked about -- I think you were referring to the average percentage of completion. It was 55% at the end of last period. Then you had a fifth question which I didn't really understand. So maybe I've answered it, but -- or do you want to repeat that?

Yes, that's mainly about the backlog. I'm seeing in the first half backlog lease, let's say, USD 1.8 billion in annual turnover. It's now USD 1.9 billion may be a small difference. But what's driving that?

Yes. I think the Unity coming into a full year worth of operations which is probably the main driver there.

The last question comes from the line of Quirijn Mulder of ING.

Yes. I have one follow-up from my side on the cost inflation, et cetera. So can you maybe quantify, let me say, what the impact was of COVID and the inflation impact of your -- in terms of the [indiscernible] for 2022? And what is the outlook for 2023 with COVID seriously retreating, especially in China, and maybe also with regard to the -- what the impact would be of the inflation? In other words, is the situation in 2023 better than 2022, which might be seen as an open door? But maybe you can give me somewhat -- some of strengths, let me say, similar points here that we can work on it.

Okay. I mean the -- it's difficult to provide you with exact quantification on this. Now if you look at the COVID situation in China, the fact that quarantine and the approach that China has changed is really opening up the access to China and the ability to do more work and to have less disruption. And I would say that the disruption we had seen in the previous 18 months were fairly damaging to the progress that we could see on project and had some impact. Now there are some other elements, which are present. The war in Ukraine has led to a number of other disruption in the supply chain, for example, the transfer of goods between Europe and China has taken much longer than we used to be and has created more inflation. Now just to give you an idea, and I'm not saying that this is applying to the project we have in the portfolio, but if we were to submit an offer for exactly the same FPSO today compared to 2 years ago, we would see an increase in cost of somewhere in the range of 30%.

Okay. Okay. That gives an idea. And with regard to the seventh hull, you have already started because I understood from the third quarter reporting that you were aiming to starting the hull in the first quarter of 2023. Has it already started?

We have put the order, and obviously, we have started to do whatever we were doing at the beginning of the project. So it's on the go.

[Operator Instructions]

So if there is no further question, I would like to propose that we conclude the call. Thank you very much all of you for attending this call. Hopefully, you got a good reading of what's happening at SBM Offshore. And you can now resume a normal activity. Thank you.

Ladies and gentlemen, thank you for attending. This concludes the SBM Offshore event call. You may now disconnect your lines. Have a nice day.